I recently had a discussion with my teacher about the FED...
It went on for awhile, and he agreed with some of my points..
But it basically ended with him saying that there's not enough gold in the world to circulate with our huge population, so he didn't see the possibility of having a gold standard again, also considering our "global" economy.
I didn't know how to reply to this, considering I am only 17 and don't have all the facts as I am still learning.. But I was wondering if anyone here could help me out with this.. I would like to be able to go back and continue my discussion with him on this topic.
I'd ask him to prove there isn't enough gold.
"I used to see a mountain as a mountain.. Thereafter.. when I saw a mountain; lo! it was not a mountain.. yet now of final tranquillity: I see a mountain just as a mountain as I used to.." - Master Yuan; molon labe
Riley: But it basically ended with him saying that there's not enough gold in the world to circulate with our huge population, so he didn't see the possibility of having a gold standard again, also considering our "global" economy.
Even if it's true, ask your sir, what stops the market from evolving new forms of money? Always keep in mind that gold was made money by the market, not by any government decree. So, if gold becomes unfit to be money, the market will find new substances to be used as money.
Read Money Regression Theory given by Mises. Since you are a starter, go for David Gordon's An Introduction to Economic Reasoning. It has two sections on money. Both are really good.
If there's not enough gold, what about silver?
Try Bastiat. I believe it's in Harmonies 1.
Money facilitates exchange. Two dollars could accomplish this goal. Prices would just be in fractional cents in our global economy.
"...The post-totalitarian system contrives to force life into its most probable states...This system serves people only to the extent necessary to ensure that people will serve it
Vaclav Havel
You have the answer:
If there isn't enough gold then how about silver, if there isn't enough silver then how about copper, if there isn't enough copper then how about zinc or tin or maybe some manufactured product or cesium or something else someone creates.
The point is that the determination and valuation of money should not be a government program. It is just too important of a decision to be left up to bureaucrats. It should be up to the market place.
This is believing the myth that if the economy grows, more money needs to be printed. Any supply of money will work for any size economy, and prices would adjust because each unit of money would become more valuable.
The value of gold would have to rise dramatically compared to what it is now, but such a process would have to occur to get us back to a commodity backed currency.
The market would also choose the best money (which would most likely be Gold and Silver). Gold coins would most likely be used for larger purchases, while Silver would be used for smaller purchases.
Tex2002ans:This is believing the myth that if the economy grows, more money needs to be printed. Any supply of money will work for any size economy, and prices would adjust because each unit of money would become more valuable.
The Kingdom of Moltz by Irwin Schiff
Op print it off and give it to your teacher.
Tex2002ans:Any supply of money will work for any size economy, and prices would adjust because each unit of money would become more valuable.
'Any' supply can't always serve transactions demand of the economy. There is an element of truth to the argument that when population increases, and the number of potential transactions too increase, the present money supply can't suffice to make all of them happen.
Yes, the value of money would appreciate and monetary units would be divided to account for the increased transactions; but there could be a hypothetical case where monetary units can no longer be divisible.
Take a group of 10 people, with an average of 20 transactions happening between them, via money(say a single green paper piece). As the population of the group increases to a thousand, the single paper piece may not be enough to carry out all transactions of the group. People would have to wait for days before they get their chance to exchange their product for the green paper. This can slow down the pace of economic transactions. The green paper could be divided into pieces, but as you know, there is a limit to the number of smaller pieces that could be made out of the single green paper. The same applies to gold.
But I must admit, I have no idea if the present gold stock is enough to carry out all transactions that the modern world requires. If, in case, gold reaches it's smallest unit of divisibility, the market will evolve other forms of money.
Okay, if anybody says that a growing economy needs more money ask them this.
''Why does a growing economy need more money?'' They will reply ''to facilaite trade''.
Then ask hem ''So it is impossible for trade to increase without more money?', they will say ''yes''.
Then ask them, ''How would you know when to print money?
They will say ''by the change in GDP''.
Then tell them that a change in GDP means trade has occurred, so their original theory that trade can't occur without a growing money supply is wrong.
So the whole idea that money has to grow according to trade can't stand on its own feet.
Prashanth Perumal:Take a group of 10 people, with an average of 20 transactions happening between them, via money(say a single green paper piece). As the population of the group increases to a thousand, the single paper piece may not be enough to carry out all transactions of the group. People would have to wait for days before they get their chance to exchange their product for the green paper. This can slow down the pace of economic transactions. The green paper could be divided into pieces, but as you know, there is a limit to the number of smaller pieces that could be made out of the single green paper. The same applies to gold.
That's because the dollar is itself an artificial limit on divisibility. Why, if it wasn't serving the needs of your hypothetical economy, would they even be using it? Unless of course there's a legal tender law or some other government mandate to do so...
You're putting the cart before the horse: any money supply an economy produces is adequate for its purposes. That doesn't mean any money supply our economy produces is adequate for any other economy's purposes, and it especially doesn't mean that a money supply that is used by our economy due to government fiat is suitable for all other economies. By limiting your economy to a single piece of paper you're merely proving the point that an artificialy imposed money that can be either artificially increased or limited isn't what the market would choose and thus not ideal or what should be used even on a practical level.
xahrx:That's because the dollar is itself an artificial limit on divisibility.
You are not understanding me right. I did not attach any fixed face value to the green paper I talked about. So I made no reference to the dollar with the green paper talk.
If you are uncomfortable with green papers, take something else, like a piece of leather. There is a limit to it's divisibility.
Prashanth Perumal: xahrx:That's because the dollar is itself an artificial limit on divisibility. You are not understanding me right. I did not attach any fixed face value to the green paper I talked about. So I made no reference to the dollar with the green paper talk. If you are uncomfortable with green papers, take something else, like a piece of leather. There is a limit to it's divisibility.
Divisible, Portable, rare. If divisibility becomes impractical for one medium, then the market will decide on another medium, while still retaining the older medium for larger purchases. The market will establish a ratio between the two mediums, or three or four. Since these mediums are not based upon debt, should one medium become abundant i.e. a piece of leather, then the market would direct the leather to it's new use. Perhaps clothing. After all, salt was money before it was a spice.
Suppose a gold magnet was developed in a situation where the market had chosen gold as its medium of exchange. In the modern world gold would become a common base metal, even in the ancient world it would, it would just take a little longer due to logistics. This would not cause a collapse of the economy. The gold would maybe become the standard for electrical wiring (in the modern day), while the market would reevaluate what to use for a medium of exchange. This would take place through trade. Gold would be traded for the new accepted medium of exchange to those individuals now producing gold electrical wiring, or whatever else gold is demanded for.
The question should we increase the money supply as the economy grows is absurd. The market will supply a medium of exchange where trade is beneficial to the parties engaging in it.
How much would be enough gold?
Microsecession as a strategy for revolution | Challenge to minarchist | How would a private road system work?
Saan:If divisibility becomes impractical for one medium, then the market will decide on another medium, while still retaining the older medium for larger purchases.
Yes, I've already told about it.
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